By Jake Lawson, LLC Formation Strategist
Here’s the truth about general partnerships in Pennsylvania: they’re legal quicksand disguised as simplicity. I’ve spent over 15 years helping entrepreneurs structure their businesses, and I can count on one hand the number of times I’ve recommended a general partnership. Even then, I usually regretted it later.
Bottom line: Pennsylvania’s general partnership laws make every partner personally liable for business debts and their partners’ mistakes. For less than $300 total, you can get an LLC that provides the same tax benefits with legal protection that could save your house, car, and life savings.
But if you’re considering a partnership—or worse, if you’ve accidentally created one—here’s everything you need to know about Pennsylvania’s partnership laws and why smart entrepreneurs choose better alternatives.
The Accidental Partnership Trap
Here’s something most Pennsylvania entrepreneurs don’t realize: you might already be in a general partnership without knowing it.
Under Pennsylvania’s Uniform Partnership Act (Title 15, Chapter 84), a partnership exists when two or more people “carry on as co-owners a business for profit.” No paperwork required. No state filing needed. Just start doing business together, and congratulations—you’re legally partners with full personal liability.
Real-World Example: The Handshake Disaster
I worked with two friends in Philadelphia who started a food truck business on a handshake. Six months later, one partner signed a $40,000 equipment lease without telling the other. When the business failed, both partners were personally liable for the full amount. The partner who never knew about the lease lost his house.
This is why I hate general partnerships. One person’s decisions become everyone’s financial problem.
Pennsylvania’s Business Structure Options: The Smart Choice Is Clear
Before we dive into partnership formation (which I’ll try to talk you out of), let’s compare your options in Pennsylvania:
Sole Proprietorship (1 Owner)
- Formation Cost: $0
- Personal Liability: Unlimited—you’re on the hook for everything
- Taxes: Pass-through to personal return
- Best For: Very low-risk side hustles only
General Partnership (2+ Owners)
- Formation Cost: $70 for DBA + misc. fees (~$100 total)
- Personal Liability: Unlimited—all partners liable for everything
- Taxes: Pass-through to partners’ returns
- Best For: Almost never
Pennsylvania LLC (1+ Owners)
- Formation Cost: $125 service fee + $200 state fee = $325 total
- Personal Liability: Limited—personal assets protected
- Taxes: Same pass-through benefits as partnerships
- Best For: 99% of small businesses
Corporation (1+ Owners)
- Formation Cost: $200+ state fee + ongoing compliance
- Personal Liability: Limited protection
- Taxes: Double taxation (unless S-Corp election)
- Best For: Businesses seeking investment or planning rapid growth
My strong recommendation: Choose the LLC. You get partnership-style taxation with corporate-style protection for about $225 more than a partnership.
The Pennsylvania Partnership Liability Nightmare
Pennsylvania’s Uniform Partnership Act creates several liability landmines that can destroy your financial future:
Joint and Several Liability
Every partner is personally liable for 100% of all partnership obligations. If your partner racks up $100,000 in business debt and disappears, guess who creditors will come after? Hint: it’s you, and they can take your house.
Agency Authority
Each partner is an agent of the partnership, meaning they can legally bind the business (and you) to contracts, leases, and obligations without your knowledge or consent.
Personal Asset Exposure
Pennsylvania law allows creditors to pursue partners’ personal assets including:
- Primary residence
- Vehicles
- Personal bank accounts
- Investment accounts
- Other personal property
The “Charging Order” Myth
Some partnership advocates claim Pennsylvania’s charging order protection offers some asset protection. This is misleading. Charging orders are creditor-friendly in Pennsylvania and provide minimal protection compared to LLC asset protection.
If You Insist on a Partnership: The Formation Process
Against my better judgment, here’s how to properly form a general partnership in Pennsylvania:
Step 1: The Business Planning Phase
Choose Partners with Extreme Care This is literally a life-changing decision. You’re giving each partner the power to financially ruin you. Consider their:
- Financial stability and credit history
- Decision-making track record
- Industry experience and work ethic
- Ability to handle stress and conflict
- Whether you’d trust them with your mortgage payment (because you essentially are)
Establish Clear Ownership Structure Define each partner’s:
- Ownership percentage
- Capital contribution requirements
- Profit and loss sharing arrangements
- Management responsibilities
- Decision-making authority levels
Define Your Business Model Be crystal clear about:
- Products or services you’ll offer
- Target market and pricing strategy
- Revenue generation methods
- Each partner’s specific roles and responsibilities
- How you’ll handle major business decisions
Step 2: Draft a Comprehensive Partnership Agreement
This is absolutely critical. Pennsylvania doesn’t require a written partnership agreement, but you’d be insane not to have one. This document is your only protection against future disputes.
Your partnership agreement must address:
Ownership and Financial Structure:
- Each partner’s ownership percentage
- Initial and ongoing capital contribution requirements
- How additional capital needs will be funded
- Profit and loss allocation methods
- Distribution timing and procedures
Management and Decision-Making:
- Who has authority for different types of decisions
- Voting procedures for major business decisions
- Deadlock resolution procedures
- Whether someone will serve as managing partner
- Authority levels for contracting and spending
Dispute Resolution:
- Mediation and arbitration procedures
- Buy-sell agreement terms
- Valuation methods for partner interests
- Right of first refusal provisions
- Non-compete and confidentiality clauses
Exit Strategies:
- Procedures for voluntary partner withdrawal
- What happens upon death or disability
- Involuntary removal procedures
- Business dissolution processes
- Asset distribution methods
Step 3: Register Your Fictitious Name (DBA)
If you want to operate under a business name other than “Smith and Jones Partnership,” you’ll need to file a DBA with Pennsylvania’s Department of State.
Pennsylvania DBA Requirements:
- Cost: $70 filing fee
- Process: File online through PA Business One-Stop Shop or by mail
- Required Publication: Must publish notice in local newspaper (additional cost)
- Renewal: Required every 10 years
Publication Requirements: Pennsylvania requires you to publish your fictitious name registration in two newspapers:
- One newspaper of general circulation
- One legal publication (if available in your county)
This typically costs $150-300 additional, depending on your location.
Step 4: Obtain Federal EIN
Every partnership must get an Employer Identification Number from the IRS, even without employees.
Application Process:
- Apply online at IRS.gov (fastest and free)
- Apply by mail (slower but also free)
- Avoid third-party services that charge for this free service
Required Information:
- Partnership agreement
- Principal business address
- Responsible party information (usually managing partner)
Step 5: Research Pennsylvania License Requirements
Pennsylvania doesn’t require a general state business license, but your partnership might need:
State-Level Licenses:
- Professional licenses (medical, legal, accounting, etc.)
- Industry-specific licenses (contracting, food service, etc.)
- Sales tax license (if selling tangible goods)
Local Requirements:
- Municipal business licenses
- Zoning permits
- Health department permits
- Fire department inspections
Federal Requirements:
- Specialized industry regulations
- Import/export licenses
- Environmental permits
Step 6: Open Business Bank Account
Required Documents:
- Signed partnership agreement
- EIN confirmation letter
- Filed DBA certificate
- Government-issued ID for all partners
- Initial capital contributions
Banking Challenges: Many banks are unfamiliar with general partnerships, which can complicate account opening. Some may require personal guarantees from all partners, further exposing your personal assets.
Pennsylvania Tax Implications: The Hidden Costs
General partnerships have “pass-through” taxation, but the reality is more complex than most entrepreneurs realize.
How Partnership Taxation Works
Partnership Level:
- Files Form 1065 informational return annually
- No federal income tax at partnership level
- Issues K-1 forms to each partner by March 15
Partner Level:
- Reports partnership income/loss on personal Form 1040
- Pays income tax on allocated share of profits
- Pays self-employment tax on entire allocated amount
The Self-Employment Tax Surprise
Here’s the killer: You pay self-employment tax (15.3%) on your full share of partnership earnings, regardless of distributions received.
Example: Partnership earns $200,000 but reinvests everything. As a 50% partner, you owe taxes on $100,000 despite receiving $0 in cash. Your self-employment tax alone would be $15,300.
Pennsylvania State Tax Considerations
- No partnership-level state tax
- Partners pay PA income tax on their share (3.07% flat rate)
- Local taxes may apply depending on municipality
- Philadelphia has additional taxes for city-based partnerships
Ongoing Compliance and Record-Keeping
Annual Requirements
Federal:
- File Form 1065 by March 15 (or request extension)
- Provide K-1s to all partners by March 15
- Maintain comprehensive financial records
State:
- Renew DBA every 10 years ($70 fee)
- File any required industry reports
- Maintain compliance with local licensing
Records to Maintain (7+ years):
- Partnership agreement and all amendments
- Annual tax returns and supporting documents
- Financial statements and accounting records
- Bank statements and canceled checks
- All contracts and legal documents
- Capital account records for each partner
Why Pennsylvania LLCs Are Superior
After explaining all this partnership complexity, here’s why smart entrepreneurs choose LLCs:
Cost Comparison (5 Years)
General Partnership:
- Initial DBA filing: $70
- Publication requirement: $200
- Periodic renewals: $70
- Total 5-Year Cost: ~$340
Pennsylvania LLC:
- Formation service: $125
- State fee: $200
- Registered agent: $125/year × 5 = $625
- Total 5-Year Cost: ~$950
The difference: $610 over 5 years for protection that could save hundreds of thousands in personal assets.
Pennsylvania LLC Advantages
Legal Protection:
- Personal assets protected from business liabilities
- Members not liable for other members’ actions
- Professional credibility with customers and lenders
Tax Flexibility:
- Same pass-through taxation as partnerships (default)
- Option to elect S-Corp taxation if beneficial
- Better retirement plan opportunities
Operational Benefits:
- Easier to add or remove members
- More flexible management structures
- Better access to business credit
- Cleaner succession planning
Pennsylvania-Specific Benefits:
- No publication requirement (unlike partnerships with DBAs)
- Better recognition by banks and vendors
- Simpler annual compliance requirements
Special Pennsylvania Considerations
Professional Practice Restrictions
Certain professions in Pennsylvania have specific entity requirements:
- Attorneys: Must use professional corporations or LLPs
- Medical professionals: Professional corporations required
- Accountants: Specific professional entity rules apply
Pennsylvania Uniform Partnership Act Quirks
Key provisions affecting partnerships:
- Partnership property belongs to the partnership, not individual partners
- Partners have equal management rights unless agreement states otherwise
- Partnership dissolves upon partner withdrawal unless agreement provides continuation
- Partners owe fiduciary duties to the partnership and other partners
Frequently Asked Questions
Can I convert my partnership to an LLC later?
Yes, but it’s complex and expensive. You’ll need to:
- Form a new Pennsylvania LLC
- Transfer all partnership assets and liabilities
- Obtain new contracts and licenses in LLC name
- Handle potential tax consequences
- Properly dissolve the partnership
What happens if my partner dies unexpectedly?
Without a partnership agreement, Pennsylvania law dissolves the partnership. With a proper agreement, you can plan for continuation or structured buyouts.
Am I liable for my partner’s actions outside the business?
Generally no, but you are liable for actions they take on behalf of the partnership business, even if you disagree with those actions.
Can I limit my liability within the partnership agreement?
Partnership agreements can limit authority between partners, but cannot limit liability to third parties. Only formal entity structures (like LLCs) provide true liability protection.
How do I remove a problem partner?
This depends entirely on your partnership agreement. Without clear removal procedures, removing an unwilling partner can be legally complex and expensive.
My Strong Recommendation: Choose the LLC
I’ve laid out everything you need to know about Pennsylvania general partnerships. The formation process is manageable, and the ongoing requirements aren’t overwhelming.
But here’s my honest professional assessment: general partnerships are 19th-century business structures that have no place in 21st-century business.
Why Smart Pennsylvania Entrepreneurs Choose LLCs
Protection: Your personal assets stay protected from business liabilities and partner mistakes.
Credibility: Banks, vendors, and customers take LLCs seriously. Partnerships often create confusion and complications.
Flexibility: LLCs offer more management options and easier scaling as your business grows.
Future-Proofing: LLCs are easier to sell, transfer, or pass to heirs than partnerships.
Minimal Extra Cost: The difference amounts to about $120/year—less than most people spend on streaming services.
When Partnerships Might Make Sense (Very Rare)
The only situations where I might consider a partnership:
- Very short-term ventures (under 6 months)
- Businesses with truly minimal liability exposure (extremely rare)
- Specific tax strategies requiring partnership taxation (consult a CPA first)
- Professional practices restricted from LLC formation
Even in these cases, I typically recommend LLCs with specific operating provisions.
Getting Started the Right Way in Pennsylvania
If you’re starting a business with partners in Pennsylvania, here’s what I recommend:
Option 1: Form an LLC Yourself
- File Articles of Organization ($200 state fee)
- Appoint registered agent ($125/year)
- Draft operating agreement
- Obtain EIN and required licenses
- Total first-year cost: ~$325
Option 2: Hire Professional Help
- Northwest Registered Agent: $125 service + $200 state fee
- ZenBusiness: $149 service + $200 state fee
- Total first-year cost: $325-349
Both options provide liability protection that partnerships simply cannot match.
Bottom Line: Protect Your Future
General partnerships might seem simpler and cheaper upfront, but they’re actually complex liability traps that can devastate your financial future. The “savings” from choosing a partnership over an LLC amount to about $10 per month—less than most people spend on lunch.
Your business partnership deserves better than a handshake and hope. Your family deserves better than unnecessary financial exposure.
Choose the LLC. In 5 years, when you’re successful and protected instead of bankrupt and broken, you’ll thank me.
Don’t let Pennsylvania’s partnership laws turn your business dreams into personal financial nightmares.
Jake Lawson has helped over 1,200 entrepreneurs structure their businesses for success and protection across all 50 states. He has no financial relationships with any companies mentioned in this guide and receives no compensation for his recommendations. His advice is based on 15+ years of experience protecting real entrepreneurs from preventable business structure mistakes.